Gratuity has a new rulebook. India’s four labour codes came into force on 21 November 2025, folding 29 older laws — including the Payment of Gratuity Act, 1972 — into a single framework, and gratuity calculation as per new labour code rules now runs through the Code on Social Security, 2020, with the all-important definition of “wages” borrowed from the Code on Wages, 2019. The good news first: the famous 15/26 formula survived untouched. The real changes are two — fixed-term employees now qualify after one year instead of five, and the wage base your gratuity runs on can no longer be shrunk below half your pay. I have worked both changes in rupees below, with a before-and-after table, so you can see exactly what the new gratuity calculation does to a real salary. Status of the law in this article was checked in October 2026.

What actually changed — and what did not

Reform headlines tend to announce that everything changed. For gratuity, the honest summary is narrower and more useful:

The two highlighted rows are the whole story for most employees. Everything else about how your amount is figured — the formula, the rounding of the final year, the ceiling logic — carries across.

The fixed-term change: gratuity after one year

Fixed-term employment — a written contract for a defined period — is now a formally recognised category with parity of wages and benefits against comparable permanent staff. The gratuity headline is the eligibility line: a fixed-term employee qualifies after one year of service, and the amount is paid pro-rata for the service actually rendered.

Under the old Act this same employee usually received nothing, because contracts of one, two or three years ended well before the five-year gate. The money at stake is not trivial. On a wage base of ₹50,000 a month:

Each figure is the standard formula — ₹50,000 × 15/26 × years — the only change is that the gate opens at one year for fixed-term staff.

Note what this does not do: it does not shorten the five-year rule for regular, open-ended employees. If you are a permanent employee who resigns at three years, the old answer still stands — no gratuity, unless the exit is through death or disablement, where the service condition falls away under both systems.

The wage-definition change: the quiet raise

The second change reaches far more payslips than the first. Indian salary structures traditionally kept basic pay low — 30% or 40% of CTC — with the rest paid as allowances. Since gratuity (and provident fund) run on the wage figure, a small basic meant a small gratuity, however large the package.

The Code on Wages closes that gap by definition: the listed exclusions from “wages” (allowances and the like) cannot exceed 50% of total remuneration. Whatever sits above that line is treated as wages anyway. In plain terms, if your basic is 30% of your package, the law now computes gratuity on a wage base of 50% of the package — whether or not your offer letter is reworded.

Worked example. A package of ₹1,00,000 a month with basic pay of ₹30,000, and ten years of service:

• Old base: ₹30,000 × 15/26 × 10 = ₹1,73,076.92
• New base (50% of the package): ₹50,000 × 15/26 × 10 = ₹2,88,461.54
• Difference: +₹1,15,384.62 — a 67% larger gratuity on the same package and the same service, purely from the definition of wages.

Two honest caveats belong with that example. First, if your basic already sits at or above half your package, nothing moves — the rule only catches structures below the line. Second, the same redefinition raises provident fund contributions on both sides, which is why many employers are still working through payroll restructuring; how each company phases the change, and how state rules land, is still settling in 2026. The direction of travel, though, is fixed: gratuity on a wage base of at least half your pay.

How to run your own new-code estimate

The new gratuity calculation is a three-step job you can do on the gratuity calculator today:

1. Find your wage base. Take the higher of (a) your actual basic pay plus DA, or (b) 50% of your total monthly remuneration. That is the figure the code works on.
2. Count your service. Five years or more for regular employees (the final year rounds up at six months); one year or more for fixed-term contracts.
3. Run the unchanged formula. Wage base × 15/26 × years, checked against the ₹20,00,000 (₹20 lakh) ceiling.

Do that and you have the estimate your payroll department will eventually produce — before they produce it.

What is still settling (October 2026)

The codes are in force, but a reform this size lands in layers. The central rules under the codes were notified in May 2026; state governments have been framing their own rules on their own timetables, and employer payroll practice is still converging — salaries restructured on paper at different speeds, fixed-term contracts being reworded, and early disputes working through the authorities. None of that changes the two headline rights above; it does mean that if your employer’s first calculation looks like the old law wearing a new badge — a sub-50% wage base, a fixed-term colleague told to wait five years — the code is the document to point at, politely and in writing. Keep your own calculation beside theirs when you do; a formula-exact figure, arrived at independently, is the most persuasive sentence in any such letter. This page is a summary of the law as I verified it in October 2026, not legal advice; for a live dispute, a labour-law professional in your state is the right next step.

What employers are doing with salary structures

The 50% wage definition reaches beyond gratuity: provident fund runs on the same base, so a structure built on a 30% basic now under-declares both. Watching payroll teams respond through 2026, I see three patterns. Some employers have rebalanced packages outright — raising basic toward 50% of CTC and trimming allowances, which lifts gratuity and PF together while trimming monthly take-home slightly. Some are keeping the payslip structure and simply computing statutory dues on the higher statutory base, absorbing the difference as a compliance cost. And some, frankly, are waiting to see how hard enforcement bites in their state. Which pattern your employer follows decides whether your gratuity jump arrives through a visibly restructured salary or through a silent change in the accrual working — either way, the entitlement follows the code’s definition, not the payslip’s labels, and the figure to check your full-and-final against is the 50%-base one.

And the workers the old Act never reached

The Social Security Code also brings gig and platform workers into the formal social-security framework for the first time, with welfare schemes funded partly by contributions from aggregators, calculated as a small percentage of their turnover. That is a genuine first — but read it precisely: it creates a framework for schemes, not an overnight gratuity entitlement identical to an employee’s, and the detailed schemes are still being framed and rolled out. If you work through a platform, the honest position in October 2026 is “covered by the framework, waiting on the scheme details” — a long way from the old position of “not contemplated by the law at all”, and not yet the same as a salaried employee’s enforceable, formula-priced gratuity. The same honesty applies to unorganised-sector coverage generally: the architecture is built; the furnishing is in progress.

The fixed-term example, end to end

Put both code changes into one payslip and the reform stops being abstract. A fixed-term hire on a two-year contract, package of ₹60,000 a month, with basic pay structured at ₹20,000. Under the old Act the story ended in a single line: two years is under five, so gratuity is ₹0 — and the low basic never even came into the conversation. Under the codes, two changes fire in sequence. First, the wage base: ₹20,000 of basic is only a third of the ₹60,000 package, below the 50% line, so the statutory wage base becomes ₹30,000. Second, eligibility: fixed-term service qualifies from one year, pro-rata. The calculation is ₹30,000 × 15/26 × 2 = ₹34,615.38, payable at the contract’s end. From zero to ₹34,615.38 on the same contract, without a single term of the employment changing — that is the size of the door the codes opened for fixed-term staff, and it is why contract workers checking “new gratuity calculation” are not reading about a technicality.

Sources: the Code on Wages, 2019 (Section 2(y) wage definition with the 50% exclusion ceiling) and the Code on Social Security, 2020 (gratuity chapter, including pro-rata gratuity for fixed-term employees after one year), brought into force on 21 November 2025 with central rules notified in May 2026; implementation status and payroll practice notes checked against current reporting at the time of writing (October 2026). All amounts recomputed from the 15/26 formula; this article summarises the law and is not legal advice.